It’s been a roller-coaster ride for container carriers the past two years, especially those serving the Trans Pacific eastbound trade lane. 2011 is certain to bring more thrills, but we won’t see the record losses of 2009, or the record profits of 2010.
Carriers were tremendously successful in increasing ocean freight rates in 2010, and managed to tack on substantial peak season surcharges in the summer months, but rates hit their peak in August. The ride is headed downhill and it’s picking up speed. All-inclusive spot rates from South China ports to Long Beach rates that peaked at nearly $3,000 per 40-foot container are now down under $2,000.
Since the peak in August, rates have declined on a weekly basis; some weeks by as little as $25, others by as much as $200, depending on which tariff or contract you look at. The cuts got bigger once bookings declined in October. The recent entry of new carriers and new services has increased capacity, and this is already having an impact.
Battles for market share were set aside in 2010 as carriers focused on their business plans. Strategies to rein in capacity will continue in 2011, but the recent decline in freight rates will affect fourth quarter earnings significantly. If this trend continues, look for another tense service contracting season in the spring. The TSA carriers, who dominate the eastbound trans-Pacific trade, have said two strong quarters do not fully offset two years of heavy losses. These carriers are forecasting cargo growth from Asia to the U.S. in the 6 to 9 percent range for 2011, and hoping for more. Their revenue plans already call for general rate increases of $400 per FEU for new contracts, and a peak season surcharge of $400.
Several major carriers have already filed tariff rules for peak season surcharges as of Jan. 1, 2011. What peak season is that? It's a hoped for surge of shipping in January, prior to the Chinese New Year, which shuts many factories for two weeks. If you start the year on a peak, where do you head from there?